Personal finance is not some inherent trait or in-born talent — it’s an art. And like any other art form, it takes time and effort to develop. Nurturing financial skills and habits can lead to potential wealth and success further down the line. It’s great to begin these things early, but it is never too late, even if you’re just starting now. 

To that end, I present you with the fundamentals of starting your journey to financial success.

Learn to budget

It all starts with listing down your income and expenses. It doesn’t matter if you like to do this using spreadsheets, apps, or the classic pen and paper, as long as you track everything. It’s also a good idea to backtrack your previous expenses (purchase receipts, bank, and credit card statements are a great way to do that) and income to create a fuller view of your financial situation. 

Once that’s done, you can start categorizing your expenses into needs and wants. Needs are the things you require to live and function. Wants are tied to desires that can improve your quality of life. Utilities, food, savings, medical care, debt payments, and other essential expenses go to needs, while things like subscription services, clothing, and entertainment — what I call discretionary expenses — go under wants. 

These concepts aren’t fixed in stone, and some expenses can objectively appear as a want but are a personal need (like my music streaming subscription.) A good rule of thumb is to delay an expense to see how it affects you and your quality of life, then decide afterward.

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Learn to save

When I receive my income, I allocate a certain percentage for savings. That amount goes into my savings account, never to be seen again. Well, that’s a bit of an exaggeration, but your savings should be an essential, non-negotiable part of your budget. Ideally, there should be a healthy amount between your income and total expenses. If not, you can consider your current wants and needs to see where you can cut corners.

For example, you may be spending too much on food deliveries when you have the option to cook and eat at home. A small adjustment to your personal time and a couple more trips to the grocery store can lead to small savings. The same goes for money spent on coffee, nights out, and the occasional trip.

Another example is when I recently cut my internet speeds by half, from 300Mbps to 150Mbps. It didn’t affect my work productivity, and I didn’t even notice the difference. But I managed to save 45% on my utility bill, which went straight to my savings.

I also like to consider my subscription services when trying to save money. Most of them offer tier subscriptions that you can pick and choose from. You wouldn’t need the Ultra HD package if you mostly watch movies on your phone. So drop down to the most appropriate tier and save a few more bucks, or drop the subscription altogether.

These small savings tend to build over time. Once it reaches a sufficient amount, your savings can serve as a cushion for emergencies and starting point for future plans. They can also be used for down payments on big purchases or to go on budget-friendly trips to beautiful places like Italy.

Now, it’s possible that you might not have much income overhead. This might require you to make deeper cuts on your expenses or forgo discretionary expenses altogether, at least until you sort your budget out. You can also expand your streams of income. Consider getting side jobs or gigs within your skillset that you can fit into your schedule.

Pay down your debts 

One of the most crucial aspects of getting financial freedom is paying your debts effectively. Getting them cleared as fast as possible should be a priority for your budget, and there are two common methods for payment.

Snowball method

As the name suggests, you first list your debts from smallest to highest. Then you focus on the smallest, giving it the biggest chunk of income you can spare, and pay the minimum for all the others. Once you finish that one, use the money to pay off the next debt. 

For a better visual representation, consider this scenario:

You have three outstanding balances to pay on your credit cards. They are:

  • Credit Card A: $1,000
  • Credit Card B: $2,100
  • Credit Card C: $750

 So you arrange them in ascending order and list down their minimum monthly payments (let’s make it easy and say 5% per month):

Instead of following that payment schedule, you minimize your expenses, free up some cash, and focus on getting rid of the smallest balance as fast as possible. In this case, you manage to free up $82.50 per month and put them towards your debts. 

In 7 months, you’ll be done with Credit Card C and are free to move down the line while using the extra $120 to speed up the process. 

Paying your debts this way creates a sense of accomplishment as the list gets shorter and shorter over time. However, you might notice that I didn’t add interest rates in this computation. That’s because the main disadvantage of the snowball method is it completely disregards interest and instead focuses on immediate, tangible results. This could lead to increased interest charges over time.

Avalanche method

This method works exactly the same way as the snowball method, with one key difference: you arrange the debts in order of their highest interest rates and start from there. Mathematically, this is the fastest way to pay off debt. However, using this method requires discipline over the term. Be warned that you might see very little progress; some people might even find that demotivating and revert to paying off minimum payments.

The avalanche method is also very sensitive to sudden changes, like increased living expenses or a medical emergency. But keep in mind that this method has the advantage of saving on interest and total payments over the course of paying down your debts - money that could get used for paying off personal loans, car loans, student loans (1.73 trillion in total debt), etc., while also potentially improving your car finance eligibility in the future.

In the end, the choice is entirely up to you. Remember to consider your income, expenditures, lifestyle, and even your personality.

Parting words

These seemingly simple tips can serve as strong foundations for your journey in personal finance. I highly suggest you start doing them as soon as possible.  

And don’t limit yourself to these three things — personal growth is an ongoing process, whether it’s about finances or any other aspect of life.